Case 1

Do these situations create a contract? Why?

1 Juan owned a manufacturing plant that assembled cell phones. An audit determined that
several phones were missing. Theft by one or more of the workers was suspected.
Accordingly, under Juan’s instructions, the following sign was placed in the employees’
cafeteria:

Reward. We are missing phones. I want all employees to watch for thievery. A reward of
€500 will be paid for information given by any employee that leads to the apprehension
of employee thieves.
—Juan

Pedro, a plant employee, read the notice and immediately called Juan, stating, “I will
watch other employees and provide you with the requested information.”

2. Almost every day Sandra took a break at lunch and went to the International News
Stand—a magazine store—to browse the newspapers and magazines and chat with the
owner, Carlos. Often she bought a magazine. One day she went there, browsed a bit, and
took a magazine off the rack. Carlos was busy with three customers. Sandra waved the
magazine at Carlos and left the store with it.

3. On August 1, Ernesto wrote to Elisa offering to sell Elisa his car for €7,600, and he
promised to hold the offer open for ten days. On August 4 Ernesto changed his mind; he
sent Elisa a letter revoking the offer. On August 5 Elisa e-mailed Ernesto, accepting the
offer. Ernesto’s letter of revocation arrived on August 6.

4. On August 1 Gerardo visited a local electronics shop to purchase a new television. He

saw one he liked but wasn’t sure if he could afford the €750. The store owner agreed to
write up and sign an offer stating that it would be held open for ten days, which he did.
On August 2 the owner changed his mind and sent Gerardo an e-mail revoking the offer,
which Gerardo received immediately. On August 3 Gerardo sent a reply e-mail accepting
the original offer.

5. On a busy day just before April 15, Alberto received a call from a local car dealer. The
dealer said, “Hi, Mr. Alberto. Now, while you have income from doing clients’ taxes, I
have an excellent offer for you. You can buy a new Buick Century automobile completely
loaded for €36,000. Al, I know you’re busy. If I don’t hear from you by the end of the
day, I’ll assume you want the car.” Alberto, distracted, did not respond immediately, and
the dealer hung up. Then followed an exhausting day of working with anxiety-ridden tax
clients. Alberto forgot about the conversation. Two days later a statement arrived from
the dealer, with instructions on how Alberto should pick up the car at the dealership.
Case 2

Who is entitled to claim for damages? Why?

1. Owner of an auto repair shop hires Contractor to remodel his shop but does not mention
that two days after the scheduled completion date, Owner is to receive five small Army
personnel carrier trucks for service, with a three-week deadline to finish the job and turn
the trucks over to the Army. The contract between Owner and the army has a liquidated
damages clause calling for €300 a day for every day trucks are not operable after the
deadline. Contractor is five days late in finishing the remodel. Owner wants to claim the
€1,500 as damages against Contractor as a consequence of the latter’s tardy completion
of the contract.

2. Inventor devised an electronic billiard table that looked like a regular billiard table, but
when balls dropped into the pocket, various electronic lights and scorekeeping devices
activated. Inventor contracted with Contractor to manufacture ten prototypes and paid
him €50,000 in advance, on a total owing of €100,000 (€10,000 for each completed table).
After the tables were built to accommodate electronic fittings, Inventor repudiated the
contract. Contractor broke the ten tables up, salvaged €1,000 of Wood for other billiard
tables, and used the rest for firewood. The ten intact tables, without electronics, could
have been sold for €500 each (€5,000 total). Contractor then sued Inventor for the profit
Contractor would have made had Inventor not breached.

3. The signals on a railroad crossing are defective. Although the railroad company was
notified of the problem a month earlier, the railroad inspector has failed to come by and
repair them. Seeing the all-clear signal, a car drives up and stalls on the tracks as a train
rounds the bend. For the past two weeks the car had been stalling, and the driver kept
putting off taking the car to the shop for a tune-up. As the train rounds the bend, the
engineer is distracted by a conductor and does not see the car until it is too late to stop.

Case 3

Chicago Prime Packers, Inc., a seller of pork ribs, filed suit against Northam Food Trading
Co., a purchaser of its ribs, in order to recover the purchase price of the product after
Northam refused to pay for ribs that arrived in bad conditions. Chicago Prime, a Colorado
corporation, and Northam, a partnership formed under the laws of Ontario, Canada, are
both wholesalers of meat products. Who is responsible for the damaged goods?

Case 4

Stein, a mechanic, and Beal, a life insurance agent, entered into a written contract for the
sale of Stein’s tractor to Beal for €6,800 cash. It was agreed that Stein would tune the
motor on the tractor. Stein fulfilled this obligation and on the night of July 1 telephoned
Beal that the tractor was ready to be picked up on Beal’s making payment. Beal
responded, “I’ll be there in the morning with the money.” On the next morning, however,
Beal was approached by an insurance prospect and decided to get the tractor at a later
date. On the night of July 2, the tractor was destroyed by fire of unknown origin. Neither
Stein nor Beal had any fire insurance. Who must bear the loss?
Case 5

A seller had manufactured forty thousand pounds of plastic resin pellets especially for a
buyer, who agreed to accept them at the rate of one thousand pounds per day upon his
issuance of shipping instructions. Despite numerous requests by the seller, the buyer
issued no such instructions. On August 18, the seller, after warehousing the goods for
forty days, demanded by letter that the buyer issue instructions. The buyer agreed to issue
them beginning August 20, but never did. On September 22, a fire destroyed the seller’s
plant containing the goods, which were not covered by insurance. Who bears the risk of
loss? Why?

Case 6

Miguel purchased a mobile home, including installation, from Juan. Juan delivered the
home to Miguel’s lot. Upon inspection of the home, Miguel’s fiancée found a broken
window and water pipe. Miguel also had not received keys to the front door. Before Juan
corrected these problems, a windstorm destroyed the home. Who bears the risk for the
loss of the home? Why?

Case 7

Colorado Fuel sold caustic soda to a buyer in Bombay. The soda was fully loaded aboard
a ship when a labor strike made it impossible for the vessel to sail. As a result, the soda
arrived in Bombay six months late. The buyer sued for the late shipment. Was Colorado
Fuel liable for damages? Does it matter that Colorado Fuel may have known that a strike
was imminent?

Case 8

One lady was traveling by air from Rome to Philadelphia. Being highly allergic to gluten,
she had requested a gluten-free meal at the time she booked the flight. She again informed
the flight attendant that she required a gluten-free meal. She was served a vegetarian meal,
but it was not gluten-free. After taking a few bites she suffered an allergic reaction and
had difficulty breathing. Is the carrier liable?

Case 9

Is the principal liable? Why?

1. Parke-Bernet Galleries, acting as agent for an undisclosed principal, sold a painting to

Weisz. Weisz later discovered that the painting was a forgery and sued Parke-Bernet for
breach of contract.

2. Ralph owned a retail meat market. Ralph’s agent Sam, without authority but purporting
to act on Ralph’s behalf, borrowed €7,500 from Ted.
3. A guest arrived early one morning at the Hotel Ohio. Clemens, a person in the hotel
office who appeared to be in charge, walked behind the counter, registered the guest, gave
him a key, and took him to his room. The guest also checked valuables (a diamond pin
and money) with Clemens, who signed a receipt on behalf of the hotel. Clemens in fact
was a roomer at the hotel, not an employee, and had no authority to act on behalf of the
hotel. When Clemens absconded with the valuables, the guest sued the hotel.

4. A doctor in a University of Chicago hospital seriously assaulted a patient in an

examining room. The patient sued the hospital on the theory that the doctor was an agent
or employee of the hospital and the assault occurred within the hospital.

Case 10

Kathy Knittle borrowed €20,000 from Bank to buy inventory to sell in her knit shop and
signed a security agreement listing as collateral the entire present and future inventory in
the shop, including proceeds from the sale of inventory. Bank filed no financing
statement. A month later, Knittle borrowed $5,000 from Creditor, who was aware of
Bank’s security interest. Knittle then declared bankruptcy. Who has priority, Bank or
Creditor?

Case 11

While waiting tables at a campus-area restaurant, you overhear a conversation between

two corporate executives who indicate that their company has developed a new product
that will revolutionize the computer industry. The product is to be announced in three
weeks. If you purchase stock in the company before the announcement, will you be liable?
Why?

Case 12

Eric was hired as a management consultant by a major corporation to conduct a study,

which took him three months to complete. While working on the study, Eric learned that
someone working in research and development for the company had recently made an
important discovery. Before the discovery was announced publicly, Eric purchased stock
in the company. Did he violate the law? Why?

Case 13

The commercial lending department of First Bank made a substantial loan to Alpha
Company after obtaining a favorable confidential earnings report from Alpha. Over
lunch, Heidi, the loan officer who handled the loan, mentioned the earnings report to a
friend who worked in the bank’s trust department. The friend proceeded to purchase stock
in Alpha for several of the bank’s trusts. Is the friend liable? Why?